A very important piece from Mortimer B. Zuckerman:
The American public feels it is drowning in red ink. It is dismayed and even outraged at the burgeoning national deficits, unbalanced state and local budgets, and accounting that often masks the extent of indebtedness. There is a mounting sense that taxpayers are being taken for an expensive ride by public sector unions. The extraordinary benefits the unions have secured for their members are going to be harder and harder to pay.
The political backlash has energized the Tea Party activists, put incumbents at risk in both parties, and already elected fiscal conservatives such as Republican Gov. Chris Christie of New Jersey. Over the next fiscal year, the states are looking at deficits approaching hundreds of billions of dollars. The Center on Budget and Policy Priorities, a liberal think tank, estimates that this coming year alone states will face an aggregate shortfall of $180 billion. In some states the budget gap is more than 30 percent. The result is a crowding out of the state role as the supporter of adequate infrastructure, education, and healthcare.
How did we get into such a mess? States have always had to cope with volatility in the size and composition of their populations. Now we have shrinking tax bases caused by recession and extra costs imposed on states to pay for Medicaid in the federal healthcare program. The straw (well, more like an iron beam) that breaks the camel’s back is the unfunded portions of state pension plans, healthcare, and other retirement benefits promised to public sector employees at a time when federal government assistance to states is falling—down by roughly half in the next fiscal year beginning Oct. 1.
It is galling for private sector workers to see so many public sector workers thriving because of the power their unions exercise. Take California. Investigative journalist Steve Malanga point out in the City Journal that California’s schoolteachers are the nation’s highest paid; its prison guards can make six-figure salaries; many state workers retire at 55 with pensions that are higher than the base pay they got most of their working lives. All this when California endures an unemployment rate steeper than the nation’s. It will get worse. There’s an exodus of firms that want to escape California’s high taxes, stifling regulations, and recurring budget crises. When Cisco’s CEO, John Chambers, says he will not build any more facilities in California, you know the state is in trouble.
The business community and a growing portion of the public now understand the dynamics that discriminate against the private sector. The public sector unions organize voting campaigns for politicians who, on election, repay their benefactors by approving salaries and benefits for the public sector, irrespective of whether they are sustainable. And what is happening with California is happening in slower motion in the rest of the country. It must be one of the reasons the Pew Research Center this year reported that support for labor unions generally has plummeted “amid growing public skepticism about unions’ power and purpose.”
There has been a transformation in the nature of our employment. Labor is no longer dominated by private sector industrial workers who were in large part culturally conservative and economically pro-growth. Over recent decades public sector employment has exploded and public workers have come to dominate the labor movement. These public sector employees have a unique and powerful advantage in contract negotiations. Quite simply it is their capacity to deliver political endorsements and votes for the very people who are theoretically on the other side of the negotiating table. Candidates who want to appear tough on crime will look to cops, sheriffs’ deputies, prison guards, and highway patrol officers for their endorsement.
These unions will naturally back a candidate willing to support better pay and benefits for their members, and this means as much as, or more than, the candidate’s views on law enforcement. The result has been soaring pay and the ability of state police and other safety officers to retire with pensions that place an increasingly unbearable financial burden on the states. In California, such retirees at age 50 often receive pensions at 90 percent of their pay; comparable retirees in most other states get about half their final working salary.
In New York, public service employees have received gold-plated perks for much of the 20th century, especially generous health insurance benefits
. Indeed, where once salaries were lower in the public sector, the salary gaps in the public and private sectors have disappeared in the last two decades, or even reversed for most job categories. A Citizens Budget Commission report in 2005 showed that for most job categories in the greater New York City region, public sector workers received higher hourly wages than private sector workers. And according to a 2009 survey by the same group, this doesn’t even count the money that New York City pays in full premiums for comprehensive health insurance policies for workers and their families. Only 8 percent of workers in private firms enjoy that subsidy. Moreover, in virtually all cases, the city also pays the full healthcare premium costs for retirees and their spouses. And the city pensions are “defined benefit” plans, which are more expensive since they guarantee specific benefits on retirement.
On the other hand, private sector workers in the survey were mostly in “defined contribution” plans, which means that, unlike their cushioned brethren in the public sector, they do not have a pre-determined benefit at retirement. If New York City were to require its current workers to pay contributions toward health insurance equal to the amounts paid by the employees of local private sector firms, the taxpayer savings would approximate $628 million a year. In New Jersey, Christie says government employee health benefits are 41 percent more expensive than those of the average Fortune 500 company.
City government was developed to serve its citizens. Today the citizenry is working in large part to serve the government. It is always hard to shrink government spending. It is particularly difficult when public sector unions have such a unique lever of pressure.
We have to escape this cycle or it will crush us. One way is to take labor negotiations out of the hands of vulnerable legislators and assign them to independent commissions. They would have a better shot at achieving a fair balance between appropriate salary increases and the revenues and services of local municipalities. The electorate won’t swallow any more red ink.